So, you’ve won big and now you’re trying to decide how you want to receive lottery winnings. Maybe you haven’t won yet, but you enjoy the thought exercise of fantasizing about it. Playing the lotto is believed to be the most popular form of gambling in the U.S. Regardless, the biggest decision you’ll have to make (if you win) is whether you wish to receive annuity payouts, or lump sum lottery winnings. There are benefits and disadvantages to both. In the end the decision is highly personal, but here are three factors to think about that will influence your choice.
1.) Financial Standing: Most likely this will be the biggest deciding factor. If you’re fortunate enough to be in solid financial standing before, taking the lump sum lottery winnings may not be your best option. Unfortunately, as a nation American individuals owe almost $12 trillion in debt. Between school loans, car payments, and house mortgages the average household in the U.S. is almost $90,000 in debt. If you’re in desperate need of paying off debt, lump sum lottery winnings might be for you. This way you can take the money and immediately improve your situation. This is especially important as it will save you money in interest in the long run.
2.) Personal Management: Even if you’re in great financial standing you still may be tempted to take lump sum lottery winnings. This could be to your advantage if you are savvy with your money. Having that much extra cash means you can invest a great deal in a variety of ways. Stocks, bonds, and hard commodities like gold and silver are the top examples. There are a million different ways to invest millions of dollars. Don’t be afraid to enlist the help of a financial adviser though. Even if you have the skills yourself, coming into a lot of money can make people irrational. Keep in mind there’s always the risk of loss in investing. A lottery annuity can be a great way to set yourself up for a safe, consistent annual income.
3.) Other Implications: Taxes, legalities, and personal issues are just some of the other reasons to factor into your decision. A looming medical expense could be one reason to receive lump sum lottery winnings. Or even the notion that family and friends will come calling with their hands out if they hear you won millions of dollars. If you only receive a portion yearly, it might be easier to say no to those you love.
There’s really no universally right or wrong answer in the choice you make. Your personal situation will determine what’s best for you, but in the end only you can make that call. If you have faith and believe that you will be wise with one huge check, go for the lump sum. But if you prefer a safer, more conservative approach the annuity route is probably for you.